46th GST Council Meeting Highlights, Updates, Outcome and More

On 31st December 2021, the 46th GST Council meeting convened under the leadership of Union Finance Minister Nirmala Sitharaman. During this session at Vigyan Bhavan, New Delhi, finance ministers and top officials from various Indian states and UTs gathered to discuss key issues.

The primary agenda of this meeting was to deliberate on the proposed GST rate increase for the textile industry, a recommendation made during the 45th GST Council meeting. However, the Gujarat government raised concerns about its potential adverse impact on the sector and urged a reconsideration.

After thorough discussions, the GST Council decided to amend the proposed tax rate changes, ensuring that the existing textile sector rates remained unchanged beyond January 1, 2022. Finally, the council announced that the next GST Council meeting was scheduled for February or March 2022.

The GST Council also addressed other issues related to the application of GST. Specifically, it focused on simplifying the GST procedures. Additionally, the council worked on resolving cases pending for GST tax refunds. Furthermore, the council reviewed the performance of GST revenue collection. It highlighted the high performance of the GST regime as a whole.

What do the GST Council Meetings Mean?

GST Council meetings play a crucial role in shaping India’s taxation landscape. When the Council convenes, it brings together representatives from both the central and state governments. Together, they discuss and decide on matters related to the Goods and Services Tax (GST).

Highlights of the 46th GST Council Meeting

The 46th GST Council meeting strongly underscored the intricate considerations involved in the proposed GST rate revision on textiles. Therefore, it emphasized the necessity of adopting a thorough and data-driven approach to ensure well-informed decision-making.

1. Introduction of New Members

The meeting first commenced with an introduction and then extended a warm welcome to the new members, including Shri Kanubhai Desai from the State of Gujarat. Additionally, it acknowledged Shri Vivek Johri, the newly appointed Chairman of the Central Board of Indirect Taxes and Customs (CBIC), ensuring a cordial start.

2. Acknowledgment of Contributions

The Council first acknowledged the valuable contributions of Shri Nitinbhai Patel, the former member from Gujarat. Then, it warmly welcomed his successor, Shri Kanubhai Desai, ensuring a smooth transition.

3. Emergency Meeting

The meeting was called under the emergency clause due to a letter from the Minister of Gujarat requesting the deferral of the proposed GST rate revision on textiles from 5% to 12% effective from January 1, 2022.

4. Background on the Textile Sector

The Secretary first provided background information on the textile sector, highlighting the historical context of tax incidence. Then, he emphasized the need for inverted rate correction to address discrepancies. Finally, he explained its impact on various segments within the industry, ensuring a comprehensive understanding.

5. Recommendations for Rate Revision

The Ministry of Textiles initially recommended correcting the inverted rate structure to significantly enhance the textile industry’s competitiveness. Consequently, this correction aimed to create more employment opportunities within the sector. In response, the Fitment Committee carefully discussed various solutions and ultimately proposed a uniform GST rate of 12% on fabrics and garments.

6. Concerns and Opposition

Members from different states expressed concerns about the proposed rate revision. They cited potential adverse effects on MSMEs, employment, and the overall economy, especially in the context of the ongoing COVID-19 pandemic.

7. Request for Deferment

Tamil Nadu, West Bengal, Goa, Puducherry, Andhra Pradesh, Gujarat, and others have collectively requested to postpone the decision to increase GST on textiles. Consequently, this postponement should involve a comprehensive analysis of the industry, which should then be followed by a thorough reconsideration of the decision.

8. Related Issues

Some members raised additional issues, such as the need to revisit the decision on GST rate revision for footwear and works contracts. The extension of GST compensation to the states beyond June 2022 was also discussed.

9. Long-Term Policy Proposal 

A member from Rajasthan proposed a long-term policy decision to refrain from changing GST rates for two to three years to provide stability to the states.

10. Call for Further Study

Members emphasized the importance of detailed studies on the textile industry’s various aspects, including the share of different materials, the impact on employment, and the potential effects on the economy.

11. Concerns About GST Compensation

Some members expressed concerns about the cessation of GST compensation to states after June 2022, requesting its extension for another five years.

12. Request for Data Sharing

Members requested the sharing of studies or the commissioning of new studies to better understand the implications of the proposed GST rate revision on textiles.

13. Representation by Gujarat and Distinction Between Power Loom and Handloom Textiles

• The Hon’ble Member from Tripura supported Gujarat’s representation and emphasized the need for more consultation with stakeholders.
• Agreement with Odisha on the distinction between power loom and handloom textiles when deciding tax rates.

14. Rationalization of Tax in the Textile Sector

• The Hon’ble Member from Delhi acknowledged the swift convening of the Council meeting on short notice to address pressing concerns.
• Furthermore, there was strong advocacy for a detailed presentation by the Ministry of Textiles, highlighting the drawbacks of increasing GST on textiles from 5% to 12%.
• Members also underscored the potential negative impact of the tax rate hike on jobs, investment, and overall economic conditions within the textile sector.
• Consequently, a proposal emerged to either defer or roll back the decision, calling for a comprehensive study to address the complexities of the textile sector beyond just taxation.

15. Exploration of Alternatives and Formation of a Committee

• The Hon’ble Member from Rajasthan suggested exploring alternatives such as new tax slabs.
• Proposal to form a Committee to study the GST taxation system from a long-term perspective, dividing the economy into sectors.

16. Need for Data Circulation and Informed Decision-Making

The Secretary acknowledged the significance of the points raised by Delhi and Rajasthan, emphasizing their relevance to the discussion. Consequently, he proposed the circulation of comprehensive facts and data to ensure informed decision-making among the Council members.

17. Perspective on Rate Revision

• Discussion on the need to look at rate revision holistically, considering factors like employment.
• Reference to the previous presentation in the 39th GSTC meeting focused on the taxation perspective in the textile sector.

18. Inversion Issue and Refund of ITC

• The Council engaged in multiple deliberations on the issue of inversion, with discussions suggesting a distinction between power loom and handloom, as well as between man-made and natural fibers.
• Additionally, there was consideration of reverting to the pre-2018 scenario regarding the refund of Input Tax Credit (ITC) to address industry concerns effectively.

19. Consensus on Deferring Tax Revision on Textiles

• There was a consensus among members and officers to defer the decision to increase the GST rate on textiles from 5% to 12%.
• Additionally, various states expressed the need for a comprehensive review, emphasizing the importance of protecting state revenues and considering factors beyond taxation to ensure a balanced approach.

20. Formation of GoM on Rate Rationalization

• A Group of Ministers (GoM) on Rate Rationalization was created under the convenership of the Hon’ble Chief Minister of Karnataka.
• Consequently, it was assured that the GoM would discuss the textile issue and submit a report on rate rationalization by late February or early March 2022.

Updates on the Implementation of the 50th GST Council Meeting Decisions

Here are some updates on the implementation of the 46th GST Council Meeting decisions:

Deferment of GST rate hike for textiles

The decision to defer the GST rate hike for textiles from 5% to 12% was upheld. This means that the existing rates in the textile sector will continue. The council also formed a Group of Ministers (GoM) to study the GST rate structure for textiles and submit a report by February 2022.

Simplification of GST procedures

The GST Council has taken several steps to simplify GST procedures, including:

• Implementing a simplified return filing process for small taxpayers
• Extending the due date for filing returns for certain taxpayers
• Reducing the number of GST forms
• Waiving late fees for certain compliance failures

Resolution of pending tax disputes: 

The GST Council has set up several mechanisms to resolve pending tax disputes, including:

• A GST appellate tribunal
• A settlement commission
• A mechanism for out-of-court settlements
• GST revenue collection: GST revenue collection has been consistently increasing since the implementation of the GST regime. In FY2022-23, the gross GST collection reached a record high of ₹14.96 lakh crore.

The implementation of the 46th GST Council Meeting decisions has been positive. Specifically, the delay in the GST rate hike for textiles has provided much-needed respite to the textile industry. Additionally, the simplification of the GST procedure has enhanced compliance, making it easier for taxpayers to navigate the GST regime. The resolution of pending tax disputes has also improved the overall tax administration.

Decision	Status
Deferment of GST rate hike for textiles	Upheld
Formation of GoM to study GST rate structure for textiles	Completed
Implementation of a simplified return filing process for small taxpayers	Implemented
Extension of due date for filing returns for certain taxpayers	Implemented
Reduction in the number of GST forms	Implemented
Waiver of late fees for certain compliance failures	Implemented
Establishment of GST appellate tribunal	Operational
Establishment of settlement commission	Operational
Mechanism for out-of-court settlements	Operational
GST compensation for states	Ongoing
Decision on GST rate for footwear	Pending
Decision on GST rate for online gaming	Pending

Additional Updates on GST Rates

1. GST compensation for states

As compensation, the GST Council will give states the revenue loss they have suffered because of GST. It operates on a 14% revenue growth assumption.

2. GST rate on footwear

The GST council has not agreed, however, on the GST rate for footwear. This rate is 5% now, and there are appeals for it to be increased to 12%.

3. GST rate on online gaming

The GST Council has yet to decide on the GST rate for online gaming. Currently at 18%, it has been proposed to be reduced. Also Read: List of Special Category States Under GST

How can Businesses and Taxpayers be affected by the Changes?

The outcomes of the 46th GST Council meeting, particularly the decision to defer the proposed GST rate hike on textiles and the formation of a Group of Ministers (GoM) to review the matter, will likely have several impacts on businesses and taxpayers. Here are some potential effects:

1. Relief for Textile Businesses

Textile businesses can breathe a sigh of relief as the anticipated GST rate hike from 5% to 12% has been deferred. This decision provides them with more time to adjust to any potential changes in their pricing structures and operations.

2. Uncertainty Continues

The decision to defer the rate hike introduces an element of uncertainty for businesses in the textile sector. They may continue to face challenges in long-term planning and decision-making until a final decision is made by the GST Council after the GoM submits its report.

3. Opportunity for Advocacy and Representation

The postponement of the GST rate hike creates an opportunity for textile businesses and industry associations to actively engage in advocacy and representation. By presenting their case to the Group of Ministers (GoM), they can offer valuable insights into how the proposed rate increase could affect their operations and competitiveness.

4. Possible Changes in Supply Chain Strategies

Textile businesses may reassess their supply chain strategies in response to the potential GST rate hike. With the deferment providing additional time, they can carefully evaluate its impact on procurement, production, and distribution channels, enabling them to make well-informed decisions.

5. Market Dynamics and Consumer Behavior

The uncertainty surrounding the GST rate on textiles can influence market dynamics and consumer behavior. Consumers may adopt a wait-and-see approach, affecting purchasing patterns, while businesses may adjust marketing strategies based on the final decision of the GST Council.

6. Government Revenue Considerations

The GST Council’s decision reflects a balancing act between supporting businesses and ensuring government revenue. The final decision on the GST rate will likely take into account the economic impact on the sector while addressing the revenue needs of the government.

7. Preparation for Future Changes

Businesses, especially those in the textile sector, should use this period of deferment to prepare for potential future changes in the GST rate. This may involve conducting impact assessments, updating financial models, and staying informed about developments in the GST framework. Also Read: 45th GST Council Meeting Highlights, Updates, Outcome and More GST On Apparel, Clothing, And Textile Products

More Information

For more information on the 46th GST Council Meeting, please visit the official website of the Central Board of Indirect Taxes and Customs (CBIC) at https://cbic-gst.gov.in/ or https://gstcouncil.gov.in/gst-council-meetings